The Governor of the Central Bank of the Republic of Kosovo, Fehmi Mehmeti, accompanied by two Deputy Governors, Sokol Havolli and Lulzim Ismajli, presented before the media the measures taken by the CBK following the outbreak of the COVID-19 pandemic.
Governor Mehmeti said that, while other institutions are taking care of protecting the health and saving the lives of citizens, the CBK is working hard to protect the health of the economy or rescue the economy with the least consequences possible, which is necessary to protect the welfare of our citizens during and after the crisis.
He said that, in the framework of measures to prevent or slow down the spread of the virus, just like other countries, Kosovo is applying a large-scale closure, allowing the operation of solely economic sectors providing goods and services necessary for citizens.
“This has resulted in the interruption of activity in numerous sectors of the economy, with businesses with no revenues, while the liabilities of these businesses remain active, thus risking their solvency and may lead them to the failure. At the same time, employees of these businesses risk to be left partially or fully without incomes, thus adversely impacting the purchasing power of consumers. Under these circumstances, when the credit demand decreases and future insecurity increases, the decrease in lending from financial institutions is expected as well, thus impacting the reduction of a very important source of funding for consumption and investment. Another important channel of the Kosovo economy shocked by the pandemic crisis may be the foreign sector. Kosovo is highly depended on remittances, receiving an amount of more than 10% of GDP on annual basis. The decrease of economic activity in developed countries is surely expected to have an impact on the decrease of this very important source of funding for consumption in our country. Despite the stable flow of remittances to Kosovo, they marked a decrease in the last global economic crisis, namely in 2009, 2010, 2011; therefore, it remains to be seen how the effects of pandemic crisis are to be manifested in economies where our Diaspora is concentrated in order to have a more specific assessment of the remittances this year", stated Governor Mehmeti.
One of the sectors expected to be hit by COVID-19 pandemic is export, thus contributing to the further increase of the effects of the crisis on the Kosovo economy, while the inability to conduct economic activity under normal conditions as well as the uncertainty about future developments are expected to have a direct impact on the decline of foreign direct investment.
On the other hand, the category which is expected to sustain the most sustainability during this period are public expenses, the flow of which in the economy is expected to mitigate to some extent the adverse effects from the aforementioned channels.
The package approved by the Government of Kosovo a few days ago is expected to provide a necessary injection of funds into the economy. However, the circumstances our country's economy is going through will challenge the public finances as well.
“In order to mitigate the consequences of this crisis on our economy, the Central Bank of Kosovo has been proactive by undertaking a range of measures aimed at ensuring the normal functioning of financial system and mitigating the impact of the crisis on our economy. Also, we have continuously followed the developments at the region, EU and international level, and regularly communicated with our international collaborators, such as IMF, World Bank, EBRD and chambers of commerce in Kosovo and we all share the same concerns for this situation and in particular for the consequences that may occur in case this situation is prolonged. Also, in the framework of the CBK constitutional mandate, we have coordinated actions with all institutions of Kosovo in order to effectively manage the situation occurred”, said the Governor.
He presented before the journalists the measures taken by the CBK, starting from ensuring the regular functioning of the payment system throughout Kosovo, including the affected areas which have been isolated for a certain period of time.
The economy of the country has been constantly and sufficiently supplied with cash and I want to reassure citizens that all banks have sufficient liquidity and there will be no problems in relation to the supply of cash.
“"The CBK commenced the regular disinfection of all cash supplied in the market, as a protective measure for users of cash. However, given that cash have a multiple circulation from the moment they leave the bank, we urge citizens to strictly adhere to the hygiene instructions issued by healthcare institutions after each cash or card transaction. Liquidity levels in the banking sector as of 31 March 2020 remain at a satisfactory level of 35.3%, marking a slight increase of 0.3% percentage points compared to 16 March 2020. Deposits are also very stable, reaching EUR 3.88 billion as of 31 March 2020, marking an increase of EUR 9.3 million compared to 16 March 2020. Recognizing the difficulties that some businesses and employees are facing, CBK, together with the lending institutions, has decided to allow a grace period for loan instalment payments starting from 16 March 2020 until 30 April 2020, and depending on the developments of the situation this period may be extended. This is aimed at alleviating the financial burden on all borrowers who are facing difficulties in generating income as a result of the pandemic crisis. The temporary suspension of loan instalment payments will be reviewed on a case-by-case basis by the banks so that these benefits only go to those affected by the current crisis. In the event of such a request being approved by the bank, the penalty interest related to the loans shall not apply during this period. During this period, no deterioration measure of the credit rating will be applied to the borrower", said the Governor, adding that the CBK, through its Credit Registry measures, has undertaken all appropriate legal measures to prevent credit ratings, to not require additional provisions and to not classify them as non-performing loans in the Credit Registry.
He once again clarified that banks should, in no case, raise fees for the delivery of services.
According to the CBK forecasts, in 2020, the economy of Kosovo will not continue with its economic expansion that was characterized by an average annual growth of 3.6 percent in the last ten years.
Assuming that the economic shocks in the economy of Kosovo will be felt more in the first and second quarter and partly in the third quarter of the year, our preliminary forecasts suggest a real economic decline in the range of -2% to -4% during 2020.
The Central Bank of the Republic of Kosovo, by fully implementing the recommendations of the health institutions, has immediately succeeded in restoring each of its functions to full normality and 100% functionality.
CBK has established a Work Continuity Team and an Inter-Institutional Committee has been established between the CBK, the Treasury and the Banking Association to ensure the smooth functioning of the financial system in the country.